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Mortgage Options to Consider
When buying, refinancing, or borrowing against a home, you typically have a
variety of options to choose from. Depending on your financial situation and
your needs, here are the basics on the mortgage options that you may have.
Types of mortgages
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30-Year Fixed Rate Program - A Traditional Mortgage
A 30-year fixed mortgage consists of 360 equal payments made monthly over 30
years. You can expect to make the same monthly payment over the life of the
loan.
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15-Year Fixed Rate Program
A 15-year fixed mortgage is similar to a 30-year fixed except it is paid off in
half the time. You can expect to make 180 equal payments monthly over 15 years.
Only typical difference between a 30-year fixed and a 15-year fixed is your
payments are higher on a 15-year loan.
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One, Three, Five, Seven, Ten Year Adjustable Rate Loan Programs
An Adjustable Rate Mortgage (ARM) is a mortgage that starts out at a fixed
interest rate for a set amount of time, then adjusts according to the then
prevailing interest rate on a pre-determined schedule for the remainder of the
loan. Be prepared to handle any increases in your monthly payment as time goes
by.
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Jumbo Loan Programs
A jumbo mortgage has an amount larger than the limits set by the two largest
governmental providers of home loans, Fannie Mae and Freddie Mac. Jumbo loans
usually have a higher interest rate because these two agencies will not
purchase these types of loans.
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FHA Loan Programs
FHA loans are insured by the Federal Housing Administration (a division of
HUD), setting underwriting standards for approving applicants. These loans have
set borrowing limits but tend to be easier for borrowers to qualify for a
mortgage loan with low down payment requirements and a higher monthly debt
allowance.
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VA Loan Programs Through the Department of Veterans Affairs
VA loans are guaranteed by the Department of Veterans Affairs, allowing those
who are qualified by military service to finance with no money down.
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5/25, 7/23 Balloon Programs
A balloon mortgage typically has a five to seven-year loan term, but is
calculated and paid using a 30-year term calculation. At the end of the loan
term, you must pay off the remaining balance in one lump-sum payment or
refinance your mortgage.
Refinancing a current mortgage
Refinancing a current mortgage means you are taking out a new mortgage on your
home. It is typically at a lower interest rate or when the terms of their loan,
such as with an adjustable rate mortgage, are coming up. Before refinancing,
it’s important to find out whether you’ll have to pay a penalty on your
existing mortgage if you pay it off early.
Refinancing a current mortgage
The amount you can borrow is limited by your equity, which is the fair market
value of your home minus the unpaid balance of your mortgage. Some home equity
loans also give you tax breaks on interest. But your loan is secured by your
home, so if you cannot repay, the lender has the right to foreclose your home,
which also goes on your credit report.
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Lump sum loans
Lump sum loans work like a second mortgage. With a lump sum loan, you receive
the entire amount of the loan up front and therefore pay interest on all the
money from the very beginning.
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Equity lines
Equity lines work like a line of credit. This option is flexible, allowing you
to borrow and pay interest on each year’s cost only as it arises. Know that
some lines specify a certain minimum be borrowed every time you draw on the
line, and others even offer a "credit card" for convenience.
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